Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2023 Earnings Call Transcript

Sendas Distribuidora S.A. (NYSE:ASAI) Q4 2023 Earnings Call Transcript February 23, 2024

Sendas Distribuidora S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and thank you for waiting. Welcome to the earnings call for the fourth quarter of 2023. If you need the simultaneous translation we have this available on our platform on Zoom. In order to access this please select the interpretation button through the icon on the globe, the bottom part of your screen and choose your language of preference, Portuguese or English. We’d like to let you know that this earnings call is being recorded and will be provided on the IR website at the company, at ir.assai.com.br., where you can already find the earnings release. During our presentation all participants will have their mics off, soon after we’ll begin our Q&A session. To submit a question please select the Q&A icon on the bottom part of your screen.

Write your name, company and language enter the queue. As you’re announced a request to activate your mic will appear on the screen. Then you must activate your mic to submit your questions. We’d like to instruct you that you submit all your questions at once. All of the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts, and operational targets at Assai represent beliefs and assumptions of the company’s management as well as information that’s currently available. Future statements are not an insurance of performance. They involve risks, uncertainties, and assumptions as they refer to future events and thus rely on circumstances that may or not occur.

So investors should understand that other operational conditions and market conditions could affect the performance at Assai and lead to results that differ materially than those mentioned in future statements. Now, I will pass on the floor to Gabrielle Helu, our Investor Relations Director at Assai.

Gabrielle Helu: Welcome, everyone, to our earnings call for the fourth quarter at 2023. Today, we have with us Belmiro Gomes, our CEO, Daniela Sabbag, CFO, Wlamir dos Anjos, our VP for Commercial, VP & Logistics, and Anderson Castilho, our Operations VP. Before we begin the presentation, I’ll pass the phone to Belmiro for his initial remarks. Belmiro?

Belmiro Gomes: Thank you, Gabri. I would like to thank you all for being here in the earnings call as we present the numbers in the fourth quarter of 2023. And of course, the closing of 2023 as a full year, which was very symbolic in Assai’s history and a year where we have the closing of an internal process with the expansion and conversion of our stores. So the numbers we see now in our results during 2023 are numbers that reflect the over 82,000 employees in our company that are operating different stores and logistical centers and offices and administrative functions as well, as well as all the support within your management within your board. And throughout 2023, I’d say it became a true cooperation with the exit of the former controller shareholder in a year where we have an environmental deflation in the food sector that’s very strong.

So in our perspective, we ended the fourth quarter in a very positive way. The company is ending the fourth quarter with 16% growth in total throughout the year where we had no inflation and we saw, as you probably saw the household inflation was 0.50 ending the year of 2023. And the 16% are very relevant as they come along after the fourth quarter of 2022 where we had a total growth of 38% due to the fact that the growth in the fourth quarter of 2022 had an important cycle of openings with 38 new stores opened in the fourth quarter of 2022. So the 16% really makes the company at the end of the fourth quarter reach a level of growth of 60% in two years. So when you add up both years of growth. And this is representing the growth of the fourth quarter represents an increase of R$2.7 billion, which were added on to sales.

The fourth quarter continues its process for expansion of the 27 stores open last year and 12 of these were done in the fourth quarter. And then with this Assai end the year with 288 stores under operation, we’re still missing two stores for the closing of the extra project. The main stores have already been opened. And in our vision, we’ll provide some more details. The number of this important project could be conversion from the perception of results and earnings, but also the achievement of new customers considering it was a new positioning demonstrates the company is really on the right track to perform this project, making us have a growth of almost 60% in two years and almost 90% when you look at the three year period where you actually have this strong cycle of expansion and new store openings that the company went through.

So what we’ve seen throughout this fourth quarter is an improvement in the fourth quarter ever since the second half of November. And throughout 2023 we saw an environment of deflation debt among consumers greater caution to have the volumes of purchases, but especially our B2B public that at this moment when you have a drop in prices also becomes a little more cautious with how they’re going to set up their stocks which impacts the volumes in the second and third quarters and this is not repeated in the fourth quarter. So from the second half of November, we already noticed an improvement in volumes and we ended the fourth quarter with a progression in sales of approximately 3% and an important market share gain in the fourth quarter, but also in the end of 2023 with a positive combination in the fourth quarter of growth in the sales of the same-store space and tickets as well as the volumes.

And so of course, this scenario we’ve seen throughout 2023 makes us have cash and carry and I say not be immune to the economic scenario when it comes to debt and the families and the trade downs, but in our vision, it also brought benefits when we look at the gains of customers and the amounts of tickets that were performed in this scenario of a more difficult and complicated economy. We can see that customers start searching for a channel as a source of supply. Those customers that need to keep their supplies in their business, but also families that are searching for ways to save, even in a period where we have a drop in inflation the volume of purchases for replenishment and home supplies kept very strong in the growth rates. So we ended the year with the growth of and those of our tickets as very positive 79 million tickets in this fourth quarter total of 290 million tickets.

And this represents a store flow of approximately 420 million people throughout the year of ’23. And from this volume, 45 million of people have been visiting our stores ever since December. So just as everyone knows, we went through an intense store opening process for organic stores but also for conversions. Alongside this process, we also had important changes in our business model, changes that in our perception keep the characteristics of a site of having a strategy that is quite bold, anticipating any changes in the market and especially anticipate any purchase trends and movements in the end customers. So the penetration has been even greater in the Brazilian households and customers. This comes from the strategy, the conversion process with actual stores and our entrance into more regional, more central regions to be closer to the mid and high income public and closer to customers that are in the food service sector was a strategy that was very precise.

The innovation of the butchery and the cold cuts and bakeries, increasing service levels and improving customer service made us in 2023 have one of the biggest achievements in the year, because we became the company for physical store commerce regardless of the sector that’s most present in Brazilian households, We were able to reach one in every four households that are currently in Brazil. In some cities and regions, especially in the Southeast and major regions, we are already close to almost 50% penetration in the households and we’ve been able to enter new social levels as well. So this combination and changing the business model, especially including new services, stores in more downtown regions and an increase in occupation costs in these stores also represented a possible issue where maybe we would lose the cash and care model, but I think this is very strong in the fourth quarter when we see the efforts of the team, combining productivity gains, ongoing maturity of the stores and due to the strong process and the expansion we went through, but also the culture in the company, which is a low-cost culture, searching for ways to do more with keeping up a strong balance in the purchase experience where they is demonstrated through the drop in expenses and expenses have a reduction compared to the fourth quarter of 90 bps, considering the productivity gains we had.

And the fact that the stores open and that cycle of new stores open in the end of 2022 is already in this process for maturity. And this team effort made us have a better level of expenses which also allowed us to invest more in our competitive advantages, especially in the stores that are reaching maturity. And so this is a reflex of our strategy. We have this impact of 50 bps. And this is also impacted by the smaller volume of openings. And as we can see, a strong expansion cycle, which increased the gross margins. So that’s also, as you can see in our earnings release and this presentation, we’re really focusing on our free-IFRS vision, considering that this in our perception reflects our operational performance better because it’s a lot more connected to the cash generation and it’s the EBITDA that’s already considering the lease.

And when we close the fourth quarter, we reach 6.1. A nominal value that’s above our increase in sales and especially considering that even with the impacts of the second and third quarters, the end of 2023 brings in an EBITDA and a pre and post IFRS vision that is really connected to what we’ve seen throughout 2022. Fulfilling the guidance provided by this administration in the end of last year, where even in the environment we were in with deflation that could impact the EBITDA at a pre-operational level, this would be stable compared to last year. And so the company as you all know went through a very important cycle of investments with a total amount of investments in the year is over R$5 billion. Through the carryover we had with the CapEx of the stores opened and all the rest of the payments as well that we had to be made to GPA, which ended now in January, 2024.

But the company, even in this process with strong expansion that almost doubling in size, almost 60% growth in the last two years, the company kept its strong cash generation and this operational cash generation reached R$4.6 billion in 2023. And we all know that the execution of this conversion project and the acquisition of the commercial points, the organic stores and the investment costs increased our debt levels. And Daniela will talk about this a little more. And it also pressured the financial expenses considering the level of leverage in the company, but even with this entire cycle and this strong opening process, the net income reaches 1.9 and a total per year of 1.2%. And at this moment where the company gets back to the closing of the project focused on deleveraging, this is a line that we think should have a strong increase from now on.

You can advance on to the next page, please. So, we did bring in a bit of this considering the magnitude and relevance of the project, how the conversion network has been behaving. So of course, the shift in especially was important and it’s the first time I think that Cash & Carry can really get into major regions and big cities and locations were due to restrictions in the real estate market and difficulty to get approvals, it becomes very difficult to add this organic store throughout 2023, even with this environment. This was not only the clique rate or the higher interest rate. And we see that the store network, so the average we see — so we have an average of revenue of R$20 million going to R$28 million in the end of the fourth quarter, which is very close to those three times we had mentioned, which was the objective in the company.

And in our perception, we still have a lot of ramp up and growth in our sales. So when we look at this in an isolated way, only in the food sector perimeter, since we also don’t sell home appliances, which is something that hypermarkets had very strong, this multiple can reach over 3.8 times, very close to the target of the project, which was about three times more. So another behavior is that the growth in sales was also accompanied by maturity in the pre-IFRS and EBITDA vision and as we all know, these stores do have occupation costs that’s higher. And so they also have an average ticket that’s a lot higher. There’s also the issues with the commercial galleries, as we can, should also bring in some important profitability gains, leaving 2.6% in the first quarter to 5.6%, which is in the closing of the fourth quarter and also very close to the legacy network that here we want to remind you that the higher cost is already affected in this margin perspective.

So once again, covering the EBITDA pre-IFRS and also in the post-IFRS vision, which is the base for cash generation in the company, you can see this evolution, the evolution of the maturity, expense, discipline, and the consistency and efforts of the commercial area to adjust the product mix, which is very important to ramp up the stores, commercial dynamics, communication, in our marketing teams, promotional campaigns, and then at the end, you can see this positive set of factors. And this also makes the company have an important leak in its growth, demonstrating how these conversions and how this expansion has been very precise, even though it did lead to a higher leverage level than what we imagined in the beginning of the project. So with this, the value of the EBITDA is completely stable even with 115 stores.

This percentage is quite stable. And we have an increase of 20% compared to the previous year and 33% when we look at this fourth quarter. So the EBITDA, the post-IFRS EBITDA also has a shift in geographies, considering that most stores are already operating and the least we have are already completely operational. So now, I would like to pass the floor on to Gabrielle as she talks about the net income and our leverage level.

Daniela Sabbag: Hi, this is Daniela, good morning, everyone. And now we’re going to move on to slide five, where we get into our earnings and our net income. So in the fourth quarter, our earnings reached R$736 million. And if we exclude interest on the liability, on the lease interest, the results reach almost 2.6% of sales– of the net sales and R$478 million. So this increase is about a bit more than R$200 million every year. And in the full year, we have a financial result of R$1.8 billion and R$800 million more. Now, when we get into the effects, the main effects, we can see a bigger volume in the gross debt, especially when we consider the maturities of the debts and commitments in the company for 2024. Sorry, the commitments in 2023, but throughout the year, we were able to have a CRI in July, then we had some fundraising for the maturities of ’24, [indiscernible] in December, and some other debt rollout processes that we also operationalized.

So then we also have a smaller effect from an accounting perception, which is the capitalized interest due to the final phase of the conversion project. And so in the quarter, we have a capitalized interest that’s lower and all the rest is in the IFRS-16. And in the year, this effect is over R$400 million and in the cost of the net debt is R$344. So in the year, we have the impact of the average interest, which also affects our debt and went from R$12.4 in ’22 to approximately R$13 in this average interest in ’23. So these are the main effects. And of course, we have an impact in our net income, which ended the quarter with R$3.3 million and the greatest level in the year with a margin of 1.9% with all of the seasonality in the quarter. And we also had operational leverage that was very important in the quarter as it was very positive.

And we have the quality of expansion maturity of these 115 stores in the last three years also helps a lot and leads to this net income in the quarter. So with this, we can also demonstrate the resilience of our business model even in a context with inflation, sorry, deflation in ’23 and interest at so high, and so in our year, our profit reaches R$776 million and a margin of R$1.2. Then we reach the cash generation side and leverage and so as Belmiro mentioned, R$4.6 billion and this is a growth of R$453 million year-over-year. So this result comes from the growth of the free EBITDA that grew 20% leveraged by everything we had already discussed with the sales, growth, maturity of the stores and the control of expenses as we mentioned and also an improvement and it’s important to highlight the improvement of our cash cycle, which at the end of the day is translated into a lower need for working capital.

And so we can see this generation is sufficient to fund all of the investments in expansion and the payments. And however, we still have this high level of interest that affects the cost of the debt of R$1.8 billion. So we’ll end the year with a net debt of R$13.1 and our leverage reached R$3.8. And so the results you see here on this graph, on the blue line of this graph, the R$3.8 and this leverage came above what we expected, especially due to this operational generation and everything we mentioned with the maturity. And we had mentioned that in the Investor Day, we had talked about how the leverage in ’22 — in the end of ’22 was representing a reduction of 0.3 times. So this drop of 0.6 year-over-year is even higher than this sign represented there.

And so here I think we can really, everything we’ve seen from analysts, we can really surprise. And when we consider the leverage has between 0.8, 0.9 on receivables and this number includes the receivables in the company. When we look at the gray line, we have the vision represented here that we normally used to disclose into the second quarter, but here we don’t have the receivables and also the payment of the real estate, the commercial real estate. And also in ’23, we’ve paid R$2.4 billion in the installments in the acquisition of the commercial spots. And in January, we already paid off the last installment, which was R$900 million. So in the concept of the covenants for financial contracts, our leverage was 179, which was a lot lower than the limit we have of three times, which represents a difference of almost R$6 billion compared to our very comfortable position with our covenants.

And so when we get into the deleveraging process for ’24, it should be continuing this process to intensify the deleveraging of the company with a ongoing and growing cash generation and the end of the payments as well, as I mentioned previously, as well as a lower level of investments that we have for ’24 with 15 stores due to our last factor that contributed to the deleveraging, which is also a lower level of interest in ’24. So now, I finished my slides here and I’ll pass it on to Belmiro to finish our presentation.

Belmiro Gomes: Hi, Daniela. Thank you so much. And I’ll go back to highlighting what this three-year period was all about, considering that this, when we had the decision to search for the stores in downtown regions include more services, all this happened in 2020 and 2021. We had a whole other reality and interest rates in Brazil. We knew that it was a low rate, but the movement we had that was quite old and strategic to position new stores demonstrates that from a perception of result was a very positive movement we had a strong level of investments. The company invested in the cost of debt and what we already had in previous that a total amount about R$16 billion, but the company was able to generate over R$11 billion already in this period, so the generation of cash is a strong.

We have a strong cash generation operation and this is one of the important milestones in the company and this makes this level of leverage fund a project that a beginning, middle, and end. And when we complete this project, we’ll start seeing the deleveraging process in this period. But all of this allowed the company to work from 184 stores to 180 stores with R$39 billion and over R$73 million. One of the biggest companies in Brazil, one of the biggest private employers in Brazil and we’re able to keep our strong cash generation. So in ’23, although there have been turbulence in the year and the maintenance of the pre-IFRs EBITDA really gives us the certainty and trust as strong deleveraging trend we’re facing in the near future. We can move on.

About ESG, as we also need to highlight Assai in the reference, we had many highlights now throughout the fourth quarter and Assai was kept very present in sustainability index at B3. We also kept our carbon efficiency index. We had an advance of over 10% reduction in the emissions of Scope 1 and 2 with an increase in the reuse of waste. I want to thank all of our sustainability team and different departments involved. This is all part of the culture of the company and part of our business model, within the decisions that really make the company keep on a sustainable trend, but also be sustainable when it comes to social responsibility in our role of responsibility with over 480 tons of food delivered to over the 24 social organizations and work that continued in 2023.

Besides the strong work we’ve done during the period of the pandemic with all of the efforts that Assai performed in the community’s brain. We also had an important CEO [ph] which is about women on board. And we have important advances to be made as well as the inclusion of people that are over 50. So the indicators in the company of course represent ongoing improvements and they had an important evolution of 43% of black individuals, 25% women in leadership positions and the amount of employees that have disabilities which is above the legal quota or minimum which is 5.4 and that’s an important achievement with a company that has over 82,000 employees. This year you’ll see in the report some of our strategic pillars in this revision of the work we performed.

And this is all based in three pillars. So the operations that are efficient we’re just seeing our climate impacts of course always promoting the guarantee of responsible supplies, continuing our work with the development of people and communities that where we are present in a country there’s a lot of social inequality like Brazil and a big difference from one region to another. And then of course we always try to encourage entrepreneurism and we perform many different projects with the Assai Academy and we try to also implement a very entrepreneurial vision, of course keeping the ethics of transparency in our business based on the best practices and issues mentioned in the overall market. Moving ahead in 2024, we have a strong focus to deleverage.

We’ve been highlighting the conversion project which had a beginning, middle and end and now we’ve completely finished it the last part of the store as we had of the installment we had to pay to GPA, we paid in January, but the level of debt in the company in the first quarter should drop compared to the fourth quarter which allows us to set a positive scenario in the leverage position and we expect that at this moment we’ll see a reduction in the leverage considering the indicator index that we had already highlighted in the Investor Day we had in 2023. And this is due to the fact that we ended our payments to GPA. We have a reduction in the levels of investments and expansion. We have 15 stores expected for 2024. And so we have a huge difference when it comes to the level of investments the company performed in the last few years to this level we’re in now.

And when we add this all up alongside what we’ve already seen in the fourth quarter, the growth of the sales, maturity of the stores leading to greater cash generation combined with the rate that’s also part of the expectation of the reduction in the interest rates today that allow us to have improvements in our net income and also the reduction of the financial costs and leveraging the company. So when you look at the macro scenario, you can see the levels of expenses we delivered in the fourth quarter, which are of course a result of the operational efficiency and they’re sustainable in the long run and they of course, the company will continue to balance out its competitive advantage, the ramp up of the stores and this will also lead to an evolution of the EBITDA margin in 2024 compared to what we had now in 2023 with a series of opportunities, with profitability of the assets as well as in this network of stores we still have a lot of stores that have maturity and this gives us the opportunity to explore.

Our galleries better and include new categories of products adjustments in the evolution also in the service areas. And of course, we can estimate a scenario that’s more positive in ’24 than what we had in 2023 besides our continuity in the strategy. So from my side on the presentation this is pretty much it. Now I’ll pass the floor back to Gabrielle Helu our IR director.

Gabrielle Helu: So thank you Belmiro. We’re going to start the Q&A session now.

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Q&A Session

Operator: Now we’ll begin our Q&A session. We want to remind you that if you have any questions you must select the Q&A icon on the bottom part of the screen, write your name language and company and enter the queue as you’re announced a request to activate your mic will appear on the screen then you must activate your mic to submit questions. We’d ask you to all please submit all of your questions at a single time. Our first question comes from Thiago Macruz, our sell-side analyst at Itaú. Thiago, we’ll open up your mic so you may proceed please.

Thiago Macruz: Hi guys, good morning and congratulations about the quarter and year. My question is related to sales in the beginning of the year. We’ve some feedback that the return of the food inflation has helped with the sales in the beginning of the year. But I wanted to ask you guys, if you guys have experimented something like this, if you guys have seen this happen, and if there is an expectation of a possible recovery in the stock levels of the B2B customers. Do you guys consider this to be reasonable, that this would happen in the next periods in 2024? And finally, a great work controlling expenses this quarter. But I just wanted to understand if we can imagine that this is a whole new journey and that these expenses really changed in the levels they had before?

Belmiro Gomes: So thank you Thaigo. The answers here, the beginning of the year has been very positive, a lot more positive than in line with what we saw. And the fourth quarter was a little more positive also. And now we want to pass the floor on to Wlamir as we talked about expectations for inflation and stocks. And others will also talk about our expenses as we had an important reduction in the fourth quarter. We invested more in our competitive advantages and have been working on, being more aggressive in this process, and this is really connected to expense discipline. Wlamir you can start.

Wlamir dos Anjos: Good morning, everyone. Thank you for the question, Thaigo. When it comes to inflation here, we have an expectation this year of about 4% to 5% inflation. We still see a scenario of volatility in commodities, which is a reality ever since forever. But when we look at the industrialized products, we have an expectation for inflation. But of course the inflation helped in the first days of the year. So just as we grow in our volumes in the fourth quarter, this is something that’s very important for us, because customers are buying at the same store base. And so when we look at the stock in B2B, we still have to be a little bit careful. I believe that the purchase movement and taking care of the working capital and these small entrepreneurs will be kept.

I don’t think we’re going to have greater stock than normal. But of course, the improvement in the sales and the macroeconomic scenario will make them buy greater volumes. But I don’t think we’re going to have any problems with this. Now, I’ll pass the floor back to Anderson, so he can talk about expenses.

Anderson Castilho: Thank you, Wlamir. Thank you, Thaigo, Belmiro and everyone. I think expenses are a big highlight and it demonstrates our discipline and our team at the stores. And we know that it’s always about controlling line after line. So we have another point that’s very important that we mentioned with the maturity of the stores. We worked over 60 stores last year plus the year before. And we still have important productivity gains in the stores with the value proposition we presented in our stores in the past few years with more services like butchery, cafes, all of this really brought greater maturity and experience and lessons learned. So this helped us control more of our costs so we can be a low price operator.

So we think this cost reduction is sustainable. Of course, we always have to control the expenses on an ongoing base. So we always have to be as efficient possible to be able to keep our expenses in line. And so, I think it is feasible and we are super controlled when it comes to expenses. But I think the main effort with the team is to store productivity, being more efficient so that we can keep these levels of expenses low. And I think that’s pretty much it.

Thiago Macruz: Thank you. Excellent, guys. Thanks for the answers.

Operator: As we move on, our next question is from Felipe Cassimiro, our sell-side analyst at Bradesco BBI. Felipe, we will open up your mic, so you may proceed. Please, you may proceed.

Felipe Cassimiro: Thank you. Good morning, everyone. First question here is, could you give us a little more details on the drivers and the drop of the gross margin in the fourth quarter? Just so we can understand the trend up ahead. So the fourth quarter is very seasonal and this time the gross margin went below 17%?

Belmiro Gomes: So sorry, you can continue.

Daniela Sabbag: Yes, great. So no, you can answer Wlamir already. But the fourth quarter has two combinations of factors. We were searching for more operational efficiency. So as we saw, we would have an important reduction in expenses. We had a mix of investments, like whatever advantage. We also have an impact from the previous year, considering that the stores we opened up in the end of 2022, considering that we had a new mix of services and many different agreements, suppliers as well, for the store openings. And when we consider the drop in margins, we have approximately 0.40 or 0.30, which would be equivalent to the agreements for the store openings. And the fourth quarter of 2022 had a huge amount of stores open, especially actions where we had some important negotiations.

And we highlighted in the call that from a deadline perception and also support for the suppliers we had achieved some gains in our perception. This positioning brings us an opportunity that’s very important to have a lower cost format and lower sales for individuals and businesses, so obviously, having a cash & carry store, such as the conversion store, and when you have an amount of almost 10,000 SKUs, and so this also represented a lot in the fourth quarter. We always have to expect to maintain the gross margin. And they also have the store maturity. So you have a big amount of stores still. And the objective of these stores, as always, the main objective is, of course, to consider our EBITDA curve free-IFRS will always search for sales improvements.

And that’s always going to be more important than expense. So there’s also an effect in the gross profit as we search for ways to be more competitive. But we do imagine a stable level in the gross margin.

Felipe Cassimiro: Okay, perfect. Thank you so much. And then my second and last question is about CapEx. We think this has been a very recurring topic. And in the last quarter, so 80 million per store, I think this was in a year. So is there another initiative to reduce expenses per store in the next two years, for example?

Belmiro Gomes: Yes. Okay, thank you, Felipe. We do have initiatives. And I think we also have to look into the fact that we have these store conversions. And when we look at this, we have had quite a bit of expertise with the conversions. We had an initial batch when I say it was still a GPA, subsidiary and the stores that came from Extra such as [indiscernible] for example is a store that has over 40,000 square meters of built areas. So these stores have a structure reinforcement process that is more expensive. This normally doesn’t happen in an organic store. So this of course pressured the investment line with of course with the amount of ABLs or the extra stores and galleries we have at the stores. But what we try to do in the conversions of these stores is that even if there was an investment they would have an OpEx, a maintenance level that’s just as an organic network store network.

So we didn’t leave anything for later when it comes to execution. Even though we would have to handle a higher investment we could even postpone certain services that would have to be done a year or two later, but it would be a lot more expensive to do this with the store open. So the switch in the firefighting system which is different, but especially when it comes to the stores that require higher investments considering the size. So this amount of course changes a lot according to the store network. And then you also have the execution of organic stores which are stores with a big area. We have stores that are being built with over 15,000 or 16,000 square meters plus the hypermarket. So yes there have been many initiatives to reduce CapEx. We had a really high cycle due to food and also construction materials, but also other equipment like pallet boards, metals, air conditioning and fire-fighting systems that also were impacted.

So this is also connected to the size of the stores. If you notice our average sale per store have that grows as well. So this is connected to the sizes as well. If we have a store that’s 4,000 square meters it’s one amount or 9,000 will be another amount. So of course there’s a high investment, but we must also consider that this store network adds on an area in the sales area but also the restricted area, galleries and especially parking areas. So a lot of the projects we have for the new stores are mainly because on average an organic store had 400 parking spots. And the stores that came from Extra had an average of 800 parking spots. So this allows us to work in other categories without bottlenecks that we would see in certain Cash & Carry stores where there’s a lack of parking spots on the weekends for example.

Felipe Cassimiro: Okay. That sounds perfect. Thank you.

Operator: Next question is from Vinicius Strano, who is a sell-side analyst at UBS. Vinicius, we will open up your mic so you may proceed.

Vinicius Strano: Hi, guys. Good morning, and thanks for taking my question. You are presenting major evolution, the maturity of the conversions stores, but I wanted to know more about the organic stores. So, for example, do you think you could give us a little more detail on the performance of these stores, the legacy stores compared to these conversion stores? And any comments on same-store or possible cannibalization stores? And any kind of perception towards the future about the store network would be great. And another point also that called our attention in the CRI was the level in the — sorry, in the quarter was the production of the stock level. So could you also explore some of the drivers in the stock improvements and how we can consider the dynamics for working capital up ahead?

Daniela Sabbag: Well, thank you, Vinicius. I’ll start answering and then I’ll pass it on to Wlamir about the stock. So cannibalization was something that we already expected would happen in the beginning of the project, although it was low in our perception due to the fact that historically Assai would not have stores close to where the Extra hypermarkets were because we used to be part of the same group. But even so, B2B customers that represent about 40% of our sales, and these kind of customers sometimes drive a little farther to find cheaper prices. So customers sometimes would buy at a store on the size of needles, which was organic, and then he now can buy closer. It might not be in. So you had an impact of about 2% to 3% of cannibalization in the legacy network that was impacted by the extra project, which was already expected by the company’s numbers.

Part of the same-store sales do have part of the store that already mature that influences this. So most of the store openings that were done in ’22 in the fourth quarter took place in a sequential manner between October, November, December. So most of them in November, December, and there should be a higher impact on our same stores with the first quarter of 2024. But the legacy network is still stable. So when you look at the fourth quarter, there is still, if we were to exclude the re-store maturity factor, we still have the same store that its positive. Of course, not in the total amount that we presented here, but what’s important to highlight is that for the store network converted that used the expertise we had the organic network but also the organic store network will also be benefiting from the conversion project extra.

So most of the services and included Belmiro mentioned that were highlighted within the extra store network will now be replicated also in the organic store network. So, same dynamics with categories even other realities of suppliers and commercial conditions that also benefit the organic network. So the legacy stores or organic stores also receive benefits from the extra stores. Even if we just consider the maturity effect there was still a positive impact although it’s still a small percentage. So capitalization is in line for what we expected. The expectations for 2024 is that as most of the services that are being included in the organic stores. So we still have quite a big batch to be delivered. We’ll also lead to growth in the store network before the extra conversion project.

And I’ll pass the floor on to Belmiro and just talk about the stock a bit now. Belmiro, I think you are on mute. I think Belmiro just had a connection issue. Well I will answer the rest of this but I can give you a little bit of the inputs on the stock. I think Belmiro had some issues, technical issues. But the stock has a normalization line in the fourth quarter considering that especially in the end of 2022 with the new stores you open up with a higher amount of employees and stock and a higher level of expense and margins that are lower of course. But when you look at the pre-EBITDA curve that we demonstrated throughout the quarter, it’s the first time we show this kind of ramp up due to the importance that the conversion stores had to investors.

But this also happens in the opposite side with the stock until you balance things out between categories product mix is what we sell more in one store the other makes you have to have a higher stock initially. But in our vision now we’ve reached a normalization and level that is sustainable for stock levels. I hope that’s clear.

Vinicius Strano: That’s great, thank you so much, Belmiro.

Operator: Moving on, our next question is from Luiz Guanais, who’s sell-side analyst at BTG. Luiz, we’ll open up your mic so that you can proceed. Luiz, you may proceed.

Luiz Guanais: Hi, good morning, Belmiro, Daniela. My question is about competition. Could you talk about this competitive environment of it from the end of last year as well as the beginning of this year with that scenario of the acceleration and inflation that we mentioned in the beginning of the call? But also hopping into the second question that’s related is if you could help us think about this growth at a marginal level when we consider this year and the next years as well what do you think will be taking place in the share gains or productivity gains? And how you also mentioned some initiatives that are taking place in the stores, so if you could mention this?

Belmiro Gomes: Okay, yes, sure, thank you Guanais. What we expect is when we look at other competitors in Cash & Carry the value proposition is very unique compared to the rest of the market. And so, when it comes to entering higher social levels and also supply of B2B customers food servers where we have high focuses. Our vision is that this will help us attract customers from three different segments. Competitors that offer in the same format as us and also have an important impact in the retail processes considering that these new stores including cafes, high levels of service, lighting, cleaning makes the store become more attractive for the replenishment purchases as well. So we’ve seen this increase in the flow especially in these stores that are more central in the extra stores with very strong customers coming in for retails especially in the most but also in the supermarkets.

So, we also see another factor that supports us and helps us with this which is the increases in logistical costs in Brazil, which if you’ve seen in the middle of last year there was a decision from the Supreme Court about the measure of the new truck driver law that also impacts a series of obligations in companies and industries that operate door-to-door that makes the advantages and logistical costs for delivery door-to-door especially in big cities making us become more attractive for these B2B customers that buy with us that also have an advantage of not having such a big working capital demand. So competition is always very intense. The sector went through an intense movement of growth, with regional players. And in our vision the numbers we saw in the fourth quarter demonstrate that although we’re in a challenging environment with more competitive scenario Assai was able to reach its levels of sales per square meter and cash generation that really makes competition adjusting its policies and trying to find ways to create and find the best performance in the market.

But the market is always very competitive. So there’s of course support from inflation. We do have a difference in inflation in 2024, but that’s not that relevant, especially when we take a look at the beginning of 2024. Gains are coming mostly related to volume than inflation. And this also allows us to estimate that the actual consumers and customers would have a little more resources, considering that we’ve gone through three years with the huge trade-down effect, the switch in brands and product trade-downs, which is about 10% to 12%. So we do expect an improvement in the economic scenario and the interest rates that are really high at the moment. But part of this also allows us to capture what we’ve seen, at least now in the beginning of the year.

Operator: Thank you, Guanais. Thank you, Belmiro. Our next question is from Felipe Rached, sell-side analyst at Goldman Sachs. Felipe, we will enable your mic so that you can proceed. Felipe, please, you may proceed.

Felipe Rached: Thanks, guys for taking my question. I wanted to start off with a quick follow-up on my question at the beginning of the call. To get into more details, the line of personnel seems to have grown way below revenue. So I wanted to get into a little more details that we should consider. And any details you can mention would be great. So moving on to a different topic here in the Investor Day in the end of this year, we talked about some initiatives and to increase monetization based on these initiatives you already have. And so when you consider this process, commercialization of the deficit spaces, but also some aspects related to financial services. And so, maybe creating new products, considering receivables of B2B customers, credit in the stores, and other initiatives that are very interesting, I wanted to know if you could give us an update on how you expect these initiatives to move on in 2024, if there’s a different focus, and any other details would be very important?